Co-founder Scott Reynolds created Armor Payments with his partner Mark French to act as a kind of B2B Escrow Service. He designed it to focus on business-to-business transactions that tend to be of the larger size. He feels that consumer-oriented payment methods, such as credit cards and PayPal, are just taken for granted by consumers, and aren’t particularly suited for B-to-B transactions.
Armor’s disruption stems from the fact that it helps companies buy and sell their goods and services without risks, delays, or other inefficiencies around the world. Reynolds explained that credit cards do a great job in protecting the consumer — if you use a credit card and you get counterfeit goods showing up at your door, you can fairly easily call up your bank and initiate a charge-back. The banks are pretty much on your side as a cardholder — they do a nice job of protecting consumers. So if you’re a merchant and some consumer initiates a charge-back — even if it’s unfounded — you may only be on the hook for $100.
But if you’re a small or medium size business, and you conduct a $10,000 sale and there is a chargeback, you now have $10,000 frozen in your account! You may not even make payroll that month. So, credit cards and PayPal similarly are not widely used for larger B-to-B transactions.
Scott Reynolds: This idea for Armor came about after I had worked for MasterCard for four years. I became fascinated with payments through that experience for two reasons: One, payments have a huge impact on daily life both from individuals as well as businesses — it makes the economy run on the ability to pay and get paid. Two, it’s historically complex with two players — very dynamic and effective. There’s complexity in this but opportunity as well.
Lauren Keyson: Was there any one specific complex problem that your company dealt with and found a solution for?
SR: Yes, absolutely. In my role at PayPal and MasterCard, I was kind of an observer who also had an opportunity to interact with businesses looking to pay and get paid for types of transactions. I saw that these companies really struggled, and were looking to the Internet to take advantage of the channels to give them new suppliers, find new customers and work towards the trend of ‘the flattening of the world’. With the Internet, you can easily do business with a company in China. You don’t have to be down the street.
That led to a whole host of new challenges, particularly around the payment and risk involved. When you buy from somebody down the street and you know where they live, you have some recourse if something goes wrong. But if you are a wholesaler or a distributer in the U.S. and you’re buying from a factory in China and something goes wrong with the transaction, it’s very difficult to find recourse. That’s the risk that buyers and sellers encounter when engaging in these online, cross-border transactions where credit cards aren’t particularly well suited to the existing bank-centric payment methods like a letter of credit.
I saw all these B-to-B companies struggle to get paid while reducing the risk for both the buyer and the seller transactions. So, I was familiar with the Escrow model, where you have a trusted third party in the middle of the transaction. I’ve seen some providers offer online Escrow for very limited segments. And so the ‘aha’ moment was, let’s take this model and build it for the internet age to allow these types of companies to pay and get paid with us sitting in the middle to reduce the risk for both sides.
LK: How do you ensure payments? How do you make them so secure?
SR: We actually hold the funds. When the buyer or the seller get into a transaction, the buyer is instructed to transfer funds into our secure Escrow account, where the funds sit. The seller can then ship the goods or provide the service knowing that the buyer is serious and has put up the funds. The buyer has the confidence that payment has not gone into the seller’s pocket; it’s sitting in Escrow until they have a chance to review the goods or services.
LK: How did you and Mark French decide not to work for a big company and instead risk starting your own?
SR: He was actually a former colleague of a colleague of mine when I was at PayPal. Shared friends introduced us. He knew I was looking for a tech mogul — he was highly skilled, entrepreneurial, and was looking to jump into the right opportunity. I had always been involved in entrepreneurial opportunities building businesses within a larger company. But I have a family and kids and to jump into this type of endeavor — it’s definitely wrought with risk.
The decision to leave a regular paycheck and jump into an entrepreneurial, non-safety net type of role was not something I took lightly. But it was something I was confident in that I knew the space and opportunity. I had a very clear vision of what the service needed to be. I was definitely aware of the risks; I was really confident in our ability to take advantage of an unmet need that I’d seen in the market. My wife was very supportive all the way along, and this is something I couldn’t have done without her support.
LK: How did you start?
SR: We’re self-funded. Then we raised a small friends and family round. Then before requiring institutional funding, we got acquired by Payoneer, which provides a very efficient way for sellers and service providers to get paid cross-border. When you combine that with our Escrow payment service, it’s really an ideal way for international buyers and sellers to reduce risk and conduct transactions – it enables a very seamless flow of funds across borders. We now have clients in China, Far East, Europe, Japan, and across the U.S. and Canada.
LK: What do Fintech entrepreneurs need to get into the payments area?
SR: Say you’ve been a participant and observer in the Fintech space for a while, so you probably appreciate the complexity and the number of players involved. So I think to go into it, you need to acknowledge and figure out your way around. Whether you’re going to have a partner or identify opportunities that big players don’t address. To go in and say I’m going to be a new credit card network, you must know good luck — because that’s probably not going to happen.